Key Insights:

The company reported an impressive 22% surge in travel service revenue during the first half of 2024, alongside a modest improvement in gross margins.

Though Huoli holds the position of the third-largest online travel agency in China, it operates significantly behind market giants Trip.com and Tongcheng.

The IPO Landscape and Huoli’s Position

After a prolonged lull in travel-related initial public offerings following the pandemic's devastating impact on the tourism industry, Huoli is marking its comeback. Its application to list on the Hong Kong Stock Exchange comes almost six years after rivals like Tongcheng secured a substantial $180 million in their listings. With a recent valuation hovering around 2 billion yuan (approximately $282 million), it's estimated that Huoli may aim to raise about $70 million through this new round of financing.

The demand for Huoli's shares will largely depend on the sustainability of China's ongoing domestic travel boom. Since the lifting of pandemic restrictions, many Chinese travelers are embarking on what is being called "revenge travel," but recent trends indicate a slight cooling in spending as consumer caution increases.

Financial Recovery Journey

During the height of the pandemic, Huoli reported staggering losses of 357.5 million yuan on revenues of 343.6 million yuan in 2021. However, the firm's fortunes started to shift rapidly, with revenues rocketing nearly 80% in 2023 to reach 501.6 million yuan. After grappling with a net loss, Huoli rebounded to a profit of 59.3 million yuan last year.

Despite strong revenue growth—22.6% up to 281.4 million yuan for the first half of 2024—its net profit did see a slight dip, falling to 31.7 million yuan. Transportation services continue to dominate Huoli's income, constituting roughly 73% of total revenue.

Industry Context and Competitors

Huoli is not alone in benefitting from the resurgence in travel. Competitors like Tongcheng have also posted strong returns, with a 48.8% revenue increase, and Fosun Tourism reporting a significant revival in profits. The latest holiday statistics show a modest increase in domestic travel, indicating that although growth continues, it’s settling into a more sustainable pace.

Meanwhile, international tourism is also experiencing a renaissance, as travel restrictions gradually lift, and tourists become eager to travel abroad.

Future Prospects and Strategic Moves

Huoli's services cater to a diverse range of travel needs, from air and train ticket bookings to hotel accommodations. With aspirations to expand globally through the planned Hong Kong office, the company envisions attracting a broader customer base outside Mainland China. Currently, Huoli’s operations are mainly domestic, but there are plans to diversify and cater to international travelers.

The company's historical challenges, including its previous attempt to list on China's National Equities and Quotations market and later on the STAR Market, have shaped its strategic shift toward Hong Kong. The recent rally in Chinese stock prices following the government’s economic stimulus measures has fueled hopes for a successful IPO.

As Huoli prepares to take center stage in Hong Kong’s competitive market, all eyes will be tilted towards its performance, with the travel sector eagerly watching to see if this IPO can successfully tap into the rising tide of post-pandemic travel enthusiasm. Will Huoli's journey signal a new era for the Chinese travel industry? Stay tuned!